A theory that has gained traction in the renewable energy space is that renewable energy sources like wind and solar are based on manufactured “technologies”, while fossil fuel energy sources like oil, coal, and natural gas are based on extracted “commodities”.
The renewable=technology and fossil fuels=commodity argument seems more like a PR attempt to increase government subsidies for renewables. And the logic is backwards. If renewables will drastically decrease in cost regardless, then there is no need for government subsidies.
Note that population growth must also be considered. If population doubles, like it has since 1975, and prices remain the same, we’re effectively doubling economic supply.
Solar has been the rock star of RE, with the price of the actual flat plastic thingies that collect the sunlight having fallen by nine-tenths in the last decade or so. The flat plastic thingies have become a minor, almost insignificant part of the cost of a solar installation. A flat plastic thingy has a socket kind of thingy on it to connect it to the household circuit or to the national grid or whatever. From the socket thingy onward, costs have not come down by nine-tenths; they have risen in line with normal increases in the costs of materials and labor. Further cost reductions seem unlikely.
Natural gas has been the rock star of FF, with prices dropping dramatically after the introduction of horizontal drilling technology. Further cost reductions seem unlikely. Prices of both solar and natural gas have settled into a groove. Future gains will be incremental, not exponential.
Is light a particle or a wave, is solar a commodity or a technology, is fracking a commodity or a technology, as you say the lines have become blurred.
The technology versus commodity dichotomy seems a bit arbitrary.
Renewables avoid fuel commodity, but still have great dependence on commodities on their manufacturing and certainly their low density necessitating long grid extension to move the power to where it is needed. They also suffer from an inability to stockpile necessitating commodity rich storage technologies.
Commodity fuel, of course, requires other commodities and technology to be converted into power.
To your point of commodities that were produced for thousands of years: I'm not sure "learning curves" are actually a meaningful concept prior to the industrial revolution, for a couple of reasons:
Learning curves require producers having high visibility over each other, competitive dynamics, a culture of growth/improvement, and reliable ways of embedding accrued technical knowledge generation on generation.
Iron may have been extracted and refined in China, Mali, and England, but it's not clear they learned anything from each other for most of that time.
The only manufactured good categories that experienced really significant declines in the AEI list are consumer electronics (computers et al), TV/AV equipment, and cameras. These 5 categories radically skew the 2000-2020 chart data. Eliminate them, and the peak of that chart gets recentered on 0%. The so-called "exponential growth curve of technologies" applies mostly to digital technologies.
So the question is: are windmills and solar panels like most other manufactured goods, or are they more like computers and TVs and smartphones?
To admit my own bias, I think windmills bear absolutely no resemblance to digital consumer electronics and do not expect their cost so exhibit double-digit drops like those do. Solar panels are a harder case, but I expect most of the production cost declines have already occurred.
I don't think this is true at all. The breakdown of CPI categories I uses includes lots of manufactured good that aren't consumer electronics or similar things, and only 9 items out of the 67 increased in inflation-adjusted price from 2000 to 2020.
Are you using different data for the chart then? Because the AEI-like chart only shows 7 categories with 7%+ declines in price over 2000-2019: comp, telecom, TVs, video, audio, cameras and lamps (I wonder if that one is due to the LED transition?)
The real materials that are used to make solar and wind power plants and grid lines and batteries etc. are all finite, just like fossil fuels. And of course these technologies require copious amounts of fossil fuels to manufacture, from the mining and refining of the materials, to the factories, to installing, maintaining, etc. Dams, too, require a LOT of materials, and require constant maintenance. These are strict limits on a finite planet. Given the rapidly dwindling ore grade of many materials critical to these technologies, it seems likely costs will increase. More diesel, more machines, more man hours, more infrastructure, all required to extract and refine the materials to make these and all technologies ensures it. And of course eventually these materials will "run out" in the sense that it will take more energy or more money or both to extract and refine them than manufacturers can make back. Just like EROEI of fossil fuels is (for the most part) declining. These are the obvious and inevitable consequences of accelerating overshoot.
(This doesn't take into account, of course, the massive ecological footprint of these technologies, which is steadily increasing as renewables are rolled out. This too has a "cost" -- no living animal, not even humans, can survive without flourishing ecosystems.)
The data analysis is very detailed, and covers more material than I would have expected possible. Thanks for that!
However, I think you make 2 fundamental errors, or maybe replicate them from other "Technologies vs. Commodities" writers.
First, learning curves apply to costs, not to prices. Under reasonable assumptions, for many goods, lower costs should lead to lower prices. However, for many "Technologies," prices are set by idiosyncratic mechanisms. For example, Boeing famously prices initial sales of new aircraft models well below costs, partly to gain credibility by making significant sales to prestigious "launch" customers, and partly recognizing that the learning curve will lower costs on future deliveries. In this market, early sales may be priced lower than later ones, especially taking inflation into account.
Second, you imply that "Technologies" are less subject to price manipulation through mechanisms like cartels. But you ignore the role of barriers to entry in many technology markets. Patents can monopolize, for a time, both new products and new production methods. Even though patent duration is limited, they can lead to sustained competitive advantage by allowing early movers to move down the learning curve sooner and faster. Follow-on patents can sustain the advantage even after the initial patent expires. Trade secrets can have similar effects, if they can be maintained. Learning curves themselves can be barriers to entry, if new entrants can't simply buy the learning by hiring experienced people from established incumbents.
I think your basic argument is that claiming "technologies" are inherently more prone to long term price reductions than "commodities" is overly simplistic. On this, I agree.
There is some possibility that improvements to technologies used to extract fossil fuels can reduce their cost temporarily, but they might also only accelerate their extraction and depletion over time, driving cost back up. Perhaps fracking is now in one such efficiency phase, having effectively boosted US domestic supply. There is also a case to be made that manufacturers of products made with fossil fuel inputs might improve efficiency, but might have similar short/long term effects. In the end, commodities cannot escape the fundamental supply/demand equation, while technologies can exert more influence over how they are consumed.
Just tagging things as commodities vs. technology seems unreasonably simplistic. Each source has its own analysis. It grates to classify resources as simply commodities - clothing is a commodity which is ridiculous to lump with iron. And iron is not even like oil or molybdenum or semi-grade silicon or LOX or lanthanides.
Each of these has their own story. You can analyze coal or oil or solar or wind, in particular, and there seems nothing to learn from the game of piling them all into "commodity" or "technology" and expecting a story to fit. Sure you might gain the occasional insight - but nothing comparable to a serious analysis. Oil vs. solar for example each involve resource extraction, land use, pollution, questions of renewability, replacement rate, etc. In each of these dimensions you can make some interesting comparisons or contrasts.
But an overall narrative of technology vs. commodity? At the end of your essay nothing really emerges except perhaps "don't take guidance from such a superficial urge to categorize".
If you want to understand where things are headed, there is plenty of detail worth studying.
Enjoyed the read. The real obstacle isn’t whether renewables “work,” it’s that oil is so damn cheap, and so deeply embedded in our society/processes, that it’s become the easiest way to keep a complex economy running...which makes moving away from it structurally hard, even when people want to move to renewables. So frustrating.
The distinction is irrelevant. All energy sources require technology to extract energy from the commodity. Fossil fuel and hydro power generation technologies have been around a long time, and aren't likely to get much more efficient at the point of generation. Nuclear, solar, and wind generation technologies still have room to improve generating efficiency. Fossil fuel and nuclear fuels still have scope to increase in extraction efficiency. (Wind, solar, and hydro generate power where they're extracted, so the distinction there doesn't really matter.) But the longer a power source has been in use, the smaller the individual gains will generally be because there have been more attempts to improve.
Distributed production isn't always a net benefit. Generating power in individual vehicles is generally less efficient than generating power centrally and storing it in the vehicle, but has significant convenience benefits. At the scale of the national grid, 5GW power stations are still a "distributed" source; no one failure will cripple the system. It's easier to harden a single power station against the weather than it is to protect a million solar panels. But more finely distributed generation is more robust to transmission network failures.
Lastly, short and medium them price fluctuations aren't entirely cause by changes in the technology of extraction or generation. All phases of energy production, distribution, and finance are subject to political interference; major price changes can be purely the result of changes in policy halfway around the world.
It is puzzling that you would use materials from RMI which is simply an activist organization and their reports are always the same. This difference between technologies and commodities is not very useful and is mainly a way to buttress renewables instead of turning things like solar panels into commodities that are priced below market pricing from China. Much more interesting and useful would be to look at the work of Alvin Roth the recent winner of the Nobel in Economics who makes a much more meaningful distinction between commodity markets and matching markets and how to apply that thinking properly to the construction industry.
Interesting article.
The renewable=technology and fossil fuels=commodity argument seems more like a PR attempt to increase government subsidies for renewables. And the logic is backwards. If renewables will drastically decrease in cost regardless, then there is no need for government subsidies.
Another excellent essay.
Note that population growth must also be considered. If population doubles, like it has since 1975, and prices remain the same, we’re effectively doubling economic supply.
Solar has been the rock star of RE, with the price of the actual flat plastic thingies that collect the sunlight having fallen by nine-tenths in the last decade or so. The flat plastic thingies have become a minor, almost insignificant part of the cost of a solar installation. A flat plastic thingy has a socket kind of thingy on it to connect it to the household circuit or to the national grid or whatever. From the socket thingy onward, costs have not come down by nine-tenths; they have risen in line with normal increases in the costs of materials and labor. Further cost reductions seem unlikely.
Natural gas has been the rock star of FF, with prices dropping dramatically after the introduction of horizontal drilling technology. Further cost reductions seem unlikely. Prices of both solar and natural gas have settled into a groove. Future gains will be incremental, not exponential.
Is light a particle or a wave, is solar a commodity or a technology, is fracking a commodity or a technology, as you say the lines have become blurred.
The technology versus commodity dichotomy seems a bit arbitrary.
Renewables avoid fuel commodity, but still have great dependence on commodities on their manufacturing and certainly their low density necessitating long grid extension to move the power to where it is needed. They also suffer from an inability to stockpile necessitating commodity rich storage technologies.
Commodity fuel, of course, requires other commodities and technology to be converted into power.
To your point of commodities that were produced for thousands of years: I'm not sure "learning curves" are actually a meaningful concept prior to the industrial revolution, for a couple of reasons:
Learning curves require producers having high visibility over each other, competitive dynamics, a culture of growth/improvement, and reliable ways of embedding accrued technical knowledge generation on generation.
Iron may have been extracted and refined in China, Mali, and England, but it's not clear they learned anything from each other for most of that time.
The only manufactured good categories that experienced really significant declines in the AEI list are consumer electronics (computers et al), TV/AV equipment, and cameras. These 5 categories radically skew the 2000-2020 chart data. Eliminate them, and the peak of that chart gets recentered on 0%. The so-called "exponential growth curve of technologies" applies mostly to digital technologies.
So the question is: are windmills and solar panels like most other manufactured goods, or are they more like computers and TVs and smartphones?
To admit my own bias, I think windmills bear absolutely no resemblance to digital consumer electronics and do not expect their cost so exhibit double-digit drops like those do. Solar panels are a harder case, but I expect most of the production cost declines have already occurred.
I don't think this is true at all. The breakdown of CPI categories I uses includes lots of manufactured good that aren't consumer electronics or similar things, and only 9 items out of the 67 increased in inflation-adjusted price from 2000 to 2020.
Are you using different data for the chart then? Because the AEI-like chart only shows 7 categories with 7%+ declines in price over 2000-2019: comp, telecom, TVs, video, audio, cameras and lamps (I wonder if that one is due to the LED transition?)
So what am I missing?
The real materials that are used to make solar and wind power plants and grid lines and batteries etc. are all finite, just like fossil fuels. And of course these technologies require copious amounts of fossil fuels to manufacture, from the mining and refining of the materials, to the factories, to installing, maintaining, etc. Dams, too, require a LOT of materials, and require constant maintenance. These are strict limits on a finite planet. Given the rapidly dwindling ore grade of many materials critical to these technologies, it seems likely costs will increase. More diesel, more machines, more man hours, more infrastructure, all required to extract and refine the materials to make these and all technologies ensures it. And of course eventually these materials will "run out" in the sense that it will take more energy or more money or both to extract and refine them than manufacturers can make back. Just like EROEI of fossil fuels is (for the most part) declining. These are the obvious and inevitable consequences of accelerating overshoot.
(This doesn't take into account, of course, the massive ecological footprint of these technologies, which is steadily increasing as renewables are rolled out. This too has a "cost" -- no living animal, not even humans, can survive without flourishing ecosystems.)
The data analysis is very detailed, and covers more material than I would have expected possible. Thanks for that!
However, I think you make 2 fundamental errors, or maybe replicate them from other "Technologies vs. Commodities" writers.
First, learning curves apply to costs, not to prices. Under reasonable assumptions, for many goods, lower costs should lead to lower prices. However, for many "Technologies," prices are set by idiosyncratic mechanisms. For example, Boeing famously prices initial sales of new aircraft models well below costs, partly to gain credibility by making significant sales to prestigious "launch" customers, and partly recognizing that the learning curve will lower costs on future deliveries. In this market, early sales may be priced lower than later ones, especially taking inflation into account.
Second, you imply that "Technologies" are less subject to price manipulation through mechanisms like cartels. But you ignore the role of barriers to entry in many technology markets. Patents can monopolize, for a time, both new products and new production methods. Even though patent duration is limited, they can lead to sustained competitive advantage by allowing early movers to move down the learning curve sooner and faster. Follow-on patents can sustain the advantage even after the initial patent expires. Trade secrets can have similar effects, if they can be maintained. Learning curves themselves can be barriers to entry, if new entrants can't simply buy the learning by hiring experienced people from established incumbents.
I think your basic argument is that claiming "technologies" are inherently more prone to long term price reductions than "commodities" is overly simplistic. On this, I agree.
There is some possibility that improvements to technologies used to extract fossil fuels can reduce their cost temporarily, but they might also only accelerate their extraction and depletion over time, driving cost back up. Perhaps fracking is now in one such efficiency phase, having effectively boosted US domestic supply. There is also a case to be made that manufacturers of products made with fossil fuel inputs might improve efficiency, but might have similar short/long term effects. In the end, commodities cannot escape the fundamental supply/demand equation, while technologies can exert more influence over how they are consumed.
The graphs are to die for. Thanks for sharing, Brian!
event technologies such as batteries, at scale, require huge labour, capital and expertise cost that might make it less obvious
Just tagging things as commodities vs. technology seems unreasonably simplistic. Each source has its own analysis. It grates to classify resources as simply commodities - clothing is a commodity which is ridiculous to lump with iron. And iron is not even like oil or molybdenum or semi-grade silicon or LOX or lanthanides.
Each of these has their own story. You can analyze coal or oil or solar or wind, in particular, and there seems nothing to learn from the game of piling them all into "commodity" or "technology" and expecting a story to fit. Sure you might gain the occasional insight - but nothing comparable to a serious analysis. Oil vs. solar for example each involve resource extraction, land use, pollution, questions of renewability, replacement rate, etc. In each of these dimensions you can make some interesting comparisons or contrasts.
But an overall narrative of technology vs. commodity? At the end of your essay nothing really emerges except perhaps "don't take guidance from such a superficial urge to categorize".
If you want to understand where things are headed, there is plenty of detail worth studying.
Enjoyed the read. The real obstacle isn’t whether renewables “work,” it’s that oil is so damn cheap, and so deeply embedded in our society/processes, that it’s become the easiest way to keep a complex economy running...which makes moving away from it structurally hard, even when people want to move to renewables. So frustrating.
The distinction is irrelevant. All energy sources require technology to extract energy from the commodity. Fossil fuel and hydro power generation technologies have been around a long time, and aren't likely to get much more efficient at the point of generation. Nuclear, solar, and wind generation technologies still have room to improve generating efficiency. Fossil fuel and nuclear fuels still have scope to increase in extraction efficiency. (Wind, solar, and hydro generate power where they're extracted, so the distinction there doesn't really matter.) But the longer a power source has been in use, the smaller the individual gains will generally be because there have been more attempts to improve.
Distributed production isn't always a net benefit. Generating power in individual vehicles is generally less efficient than generating power centrally and storing it in the vehicle, but has significant convenience benefits. At the scale of the national grid, 5GW power stations are still a "distributed" source; no one failure will cripple the system. It's easier to harden a single power station against the weather than it is to protect a million solar panels. But more finely distributed generation is more robust to transmission network failures.
Lastly, short and medium them price fluctuations aren't entirely cause by changes in the technology of extraction or generation. All phases of energy production, distribution, and finance are subject to political interference; major price changes can be purely the result of changes in policy halfway around the world.
It is puzzling that you would use materials from RMI which is simply an activist organization and their reports are always the same. This difference between technologies and commodities is not very useful and is mainly a way to buttress renewables instead of turning things like solar panels into commodities that are priced below market pricing from China. Much more interesting and useful would be to look at the work of Alvin Roth the recent winner of the Nobel in Economics who makes a much more meaningful distinction between commodity markets and matching markets and how to apply that thinking properly to the construction industry.